CHICAGO - A federal court judge granted the Chicago Board of Education another reprieve from shutting down the school system yesterday by extending a temporary restraining order for another 10 days.
U.S. District Court Judge Charles Kocoras granted the board's request for another 10 days to work out a solution with its unions and with the Illinois General Assembly to eliminate a $270 million deficit in its $2.8 billion fiscal 1994 budget.
Without the extension, board president D. Sharon Grant said. the school system would have been forced to shut down today because of the expiration of the 10-day temporary restraining order Kocoras issued on Sept. 13.
"Innocent and powerless children should not be held hostage to the inability of our governmental and educational leaders to agree on a solution to the present crisis." the judge said in the courtroom.
The board sought the original temporary restraining order after failing to balance its budget as required by state law by Sept. 1, the start of its fiscal 1994, and after a state waiver of that requirement expired. Illinois law requires the school system to close if the School Finance Authority, the system's financial oversight board, fails to approve a balanced budget.
A shutdown of the schools would not affect the payment of debt service on the system's outstanding bonds.
The board is arguing in court that a shutdown of the school system would violate a federal consent decree to eliminate segregation and insure quality education. The board has asked the court to order the sale of $120 million of general obligation bonds by the Finance Authority, and the use of $55 million of teacher pension fund revenues and $18.3 million of restricted state funds so the board can balance its budget.
Yesterday, Robert Howard, the board's attorney, said that time is needed for various parties to discuss the board's requests. He said those parties include officials from the school board, the finance authority, and the pension fund.
Roger Pascal, the authority's attorney, argued against the bond issue, saying that any bonds sold by the authority under a federal court order would be "unmarketable."
"People still have to buy the bonds," Pascal said. "There is a question of how big of an interest rate hit the board will have to take on the bonds or if the bonds are marketable at all."
In its filing in court, the authority pointed out it lacked state legislative authority to sell the bonds, turn the proceeds over to the board, and force the city of Chicago to raise the necessary property taxes to pay debt service.
For its part, the board's case cites a 1990 U.S. Supreme Court ruling in a Kansas City school district desegregation case that upheld a lower court ruling ordering the district to raise taxes despite state restrictions. The board argued that the district court in that case directed the school district to sell $150 million of capital improvement bonds without adhering to a state law requiring voter approval of increased taxes to support the bonds.
However, an attorney familiar with the Kansas City case said the Chicago school board's case is different in that an unwilling third party, the School Finance Authority, which is not part of the lawsuit, would be issuing the bonds. The attorney pointed out that in the Kansas City case, the school. district, which was a party to the lawsuit, was willing to raise taxes.
The bond issue, by the Chicago authority originated with Mayor Richard M. Daley of Chicago, who has been attempting to broker an agreement between the board and the teachers' union on $77 million of concessions. The union concessions and the $193 million of bond proceeds, pension fund revenues, and state funds would be used by the board to eliminate its budget deficit.
Earlier this week, the Republican-controlled Illinois Senate passed a two-year funding plan for Chicago schools that calls for $275 million of general obligation bonding by the Finance Authority, but not until next July, as well as other measures to balance the school budget. House Democrats and Daley have said they oppose that plan.
About $17 million of the board's BBB-rated GO debt and $13.5 million of Chicago Public Building Commission debt secured by lease rental payments by the board have been placed on CreditWatch with negative implications by Standard & Poor's Corp.
Moody's rates the board's GO debt Baa.